On the Style Used by Keynes in Presenting His IS-LM(LP) Model in Chapter 21 of the General Theory: Literary Prose, Formal Mathematics or Both?
32 Pages Posted: 22 May 2019
Date Written: April 23, 2019
Keynes’s style in presenting his technical analysis in the General Theory was not purely mathematical or purely literary. It was a blend of both. This is especially the case when Keynes decided to bring all of the elements in his IS-LM(LP) model together in section four of chapter 21 of the General Theory after he had gone over the underlying D-Z model in chapter 20 of the General Theory. Keynes incorporated uncertainty and expectations within the theory of purely competitive firms in his D-Z model. Keynes deployed the standard, technical exposition of the goal of (expected) profit maximization using the necessary and sufficient first and second order marginal conditions. This allowed Keynes to derive his Aggregate Supply Curve, a locus of all expected D and Expected Z outcomes that represents a set of multiple equilibria.
Keynes’s IS-LM(LP) model of chapter 21 DOES NOT deal with uncertainty and expectations, although Keynes does show how to do so within the context of chapter 20 when he extends his D-Z model of chapter 20 on pp.304-306 of chapter 21 to incorporate the LM curve in his elasticity analysis dealing with the elasticity ed.
There are NOT two different competing models in the General Theory, since the IS-LM(LP) model in chapter 21 is built on the foundation of the D-Z model chapter 20.
Keynes’s style of presentation has created a great deal of difficulty for economists looking for either a purely mathematical exposition or looking for a purely Marshallian, literary exposition. In fact, Keynes blends both together.
Mainstream economists, like Dimand, Young, Hoover, de Vroey, and Rubin, claim that there was no IS-LM model in the GT. They agree with the Post Keynesian school. Their differences with the Post Keynesian position is that they claim that it was Hicks, Harrod, Meade, or Lange, or some combination of the four, who tediously gathered all of the scattered parts of Keynes’s verbal, literary, prose, non formal, non mathematical, Marshallian analysis from the GT and created the IS-LM model in 1937. It is unclear to this author how these types of “interpretations” were ever taken seriously by the economics profession.
Keynes’s mathematical constructions supporting the three elements listed on pp.298-299 are in the GT explicitly on p.115, p.137 and p.199. It is unclear to me how Keynes’s system of equations was supposedly strewn throughout the GT for Hicks, Harrod, Meade, and Lange to dig out and reconstitute. What exactly is being reconstituted by Hicks, Harrod, Meade and Lange?
Keywords: IS-LM, IS-LP(LM), Keynes, Chapter 21, Chapter 15, Keynes's Views of Math
JEL Classification: B10, B12, B14, B16, B20, B22
Suggested Citation: Suggested Citation